The Pound Sterling rose in the North American session as the US Dollar stayed flat amid uncertainty over US trade policies. GBP/USD was at 1.3523, up 0.29%.
Market attention was on an upcoming earnings report due after the Wall Street close. The report was expected from one of the seven megacap companies.
Policy Divergence Supports Sterling
We are seeing the Pound hold firm around the 1.35 level, a significant climb from the ranges we traded during most of 2025. This strength is largely due to the Bank of England keeping interest rates higher for longer to combat the stubborn inflation seen last year. The US Federal Reserve, in contrast, began cutting rates in late 2025, creating a policy divergence that favors Sterling.
Current hesitation in the US Dollar is being fueled by ongoing uncertainty around the new US trade frameworks that were introduced after the elections. We saw implied volatility on Sterling options, as measured by the BPVIX index, tick up to a six-month high of 9.8% just last week. This environment suggests that trading the increased price swings could be more prudent than holding a simple directional view.
For those anticipating further Sterling strength, buying GBP/USD call options with expirations in the next 45 to 60 days offers a way to capture potential upside with a defined risk. The price action is reminiscent of the third quarter of 2025, when a similar divergence in central bank policy led to a sharp rally. Using a bull call spread can help lower the premium paid, which is important with volatility currently so elevated.
However, we must also consider that this rally might be overextended, as the 1.3550 level has historically acted as strong resistance. According to the latest CFTC report, net long positions on the Pound by non-commercial traders are at their highest level in over two years, suggesting the trade is becoming crowded. Traders wary of a reversal might consider buying out-of-the-money put options as a hedge against a sudden drop.
